Singaporean PM Lee: PRC Revaluation a Win-Win

Well here's an interesting news item: China's model of authoritarian development is said to be based on the example of Singapore [1, 2]. Whereas Deng Xiaoping's predecessors always derided the minuscule nation-state as some sort of degenerate capitalist roader, his game-changing visit there in the late 1970s is often said to be a turning point. Not only did official commentary cease deriding Singapore, but Deng Xiaoping's eyes were opened as to how far behind China had fallen and how it could move ahead without really going the proto-neoliberal route.

As you know, the rest is history. Singapore's guiding light, Lee Kuan Yew, always spoke highly of Deng Xiaoping after that as the latter began to talk about the colour of the cat not mattering as long as it caught mice. Fast-forward a couple of decades and we have a different situation: Lee Hsien Loong, the son of Lee Kuan Yew, is now the prime minister of Singapore. Meanwhile, the Chinese leadership has gone through regularly scheduled changes culminating in the current Hu Jintao and Wen Jiabao combination. Also, China is more than flush with foreign exchange as I'm sure you've noticed.

Hence, another Mr. Lee from Singapore is trying to advise China on what it should do with its currency, the renminbi. Instead of listening to (often hypocritical) white people telling the Chinese what to do all the time, perhaps hearing the same idea from the leaders of Singapore will actually register, right? At any rate, here is your guided tour of the world economy care of Lee Hsien Loong's commentary:

The most consequential relationship in the world today is between the U.S. and China. There has been significant friction, notably over exchange rates. The yuan issue is politically hard -- the U.S. sees an undervalued Chinese currency as unfair competition, while China fears that sharp revaluation will disrupt its economy, causing unemployment and unrest.

But from an economic point of view, this needn’t be a win- lose battle. A gradually appreciating yuan will encourage Chinese export industries to restructure and upgrade, help distribute the gains from growth more broadly beyond exports to the rest of the economy, and mitigate inflation, which is a growing problem in China. At the same time, it will help ease political pressures in the U.S. and tensions in the relationship.

The Chinese are aware of foreign perceptions that with growing strength it has become more assertive. China’s leaders have emphasized that the country is committed to peaceful development and has no aggressive intentions. China’s domestic challenges are numerous and daunting. Its government must uplift hundreds of millions who remain in poverty, create social safety nets for its people, moderate major disparities in wealth and development, and maintain social and political stability so that progress can continue...

No less than the U.S. or other democracies, China has its own domestic politics that it can’t ignore. China’s leaders need to explain this reality, and their basic thinking, convincingly to international audiences, who see Beijing and Shanghai and think that is China. But countries will also watch China’s actions -- how it conducts itself on international issues such as climate change, and what the leaders say to their own people on China’s role in the world.

As world economies recover, governments must continue promoting global trade, to deepen the international division of labor and foster long-term prosperity for all. More immediately, the win-win results of freer trade will give a badly needed boost to demand and growth. During the crisis, protectionist pressures were a real worry. Fortunately, governments took fewer protectionist and retaliatory actions than many feared, but they also made very few positive trade moves.

In the U.S., there is little political appetite for free trade; hence the slow progress of its bilateral Free Trade Agreements and the World Trade Organization’s Doha Round. But there are some recent positive developments. The renegotiated free-trade agreement between South Korea and the U.S. was settled recently, though not yet ratified. The U.S. is also one of nine Asia-Pacific countries negotiating a Trans-Pacific partnership, which will be a pathway toward the Asia-Pacific Economic Cooperation’s vision of a free-trade area of the Asia- Pacific region.

As usual, it's smart, observant talk from the leaders of Singapore--a country that others listen to because, well, it actually works. I can't say that others lend the same ear to a certain North American country that loves telling others what to do despite falling apart economically, politically, and socially, but I'll save that refrain for another time.

Lastly, one shouldn't lose sight of the fact that, as a country in export competition with the PRC in quite a number of areas, Singapore would undoubtedly benefit from yuan revaluation.